According to reports, multiple cryptocurrency exchanges have recently indicated an intent to publish so-called proof of reserves in an attempt to alleviate market concerns. One major exchange recently released a list of its hot wallet and cold wallet cryptocurrency addresses, and several other major exchanges have committed to publishing proof of reserves, also known as Proof of Funds (PoF). According to reports, PoF involves an exchange engaging a third-party auditor to record all customer balances at the exchange and convert the balances into a cryptographic Merkle tree, which anonymizes the data. Customers of the exchange are then able to use the Merkle tree data to compare the total balances held by customers with the total assets held by the exchange, to gain assurance that the exchange holds sufficient cryptocurrency funds to meet customer withdrawal requests. According to reports, two separate cryptocurrency firms have recently announced solutions intended to assist exchanges in facilitating and demonstrating PoF audits.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
